How secretive family offices are snapping up talent from the world of private markets and becoming bigger investing powerhouses

This post was originally published on this site
  • As the sheer amount of wealth has concentrated among the ultra-rich, family offices’ investing ambitions and capabilities are looking more like those of traditional money managers. 
  • But largely immune to the hiring slowdown traditional asset managers have felt this year, many family offices haven’t stopped hiring investing talent in recent months, recruiters told Business Insider. 
  • Nearly every recruiter we interviewed from leading search firms said family offices have sought out more employees from the private equity industry as they increasingly execute direct investments. 
  • Family offices are also looking for more in-house legal talent to help them navigate changes in tax policy if Joe Biden wins the US presidential election, some said. 
  • Visit Business Insider’s homepage for more stories.

Most banks and asset managers are slowing hiring or laying off employees during the pandemic. Or both. But family offices, the hush-hush, loosely regulated wealth managers for the world’s richest clans, are outliers.

After pausing searches for brief periods earlier this year, many have resumed hiring for largely investment roles in recent months, six recruiters said in interviews with Business Insider. 

They’re looking in many cases to draw in talent from private equity firms and elite wealth managers, recruiters said, and continuing to form operations that resemble established institutions with sophisticated capabilities. 

“Given the rising number of layoffs at financial institutions, which are family offices’ favorite feeding ground for recruitment, this has led to a widening pool of available and skilled talent for family offices to choose from,” Rebecca Gooch, director of research at Campden Wealth, said in an email.

As the sheer amount of wealth has concentrated among the ultra-rich in the US during the decade-long bull market, family offices have become much more ambitious and sophisticated than they once were.

Campden Research estimated in 2019 that there are 7,300 family offices that cater to a single family worldwide — more than a third of which are located in North America — overseeing $5.9 trillion in assets under management. 

Because of family offices’ secretive nature, determining their precise sizes can be difficult. Those seeking out more complex capabilities can range widely, from overseeing hundreds of millions of dollars to many billions. In a survey Fidelity conducted last year of 111 US-based family offices, the average respondent’s net worth was $1.6 billion.

Read more: Family offices oversee trillions in wealth and are highly secretive. But that’s changing as they chase direct deals — and company execs want to know who’s behind the money.

Seeking out more private markets talent 

Sarah Burley Reid, a partner at Spencer Stuart who co-heads the firm’s global private wealth management practice, has seen an uptick in family offices seeking out talent from the world of private equity and private credit, and those looking for opportunities in uncorrelated areas of the market.

“In the old days, the family office leader could be somebody who maybe grew up at a family company. Nowadays the family office talent pool is more highly developed,” Burley Reid, who is based in New York, said. 

In one recent search, a family office was looking for a private investor with experience in the industrial sector, as that’s where the family had made its money. It’s “where their comfort lies,” she said, and they were looking for someone “constantly scanning for investment opportunities there.”

Derek Braddock, co-founder of New York- and Boston-based asset management-focused executive search firm BraddockMatthews said a number of searches his firm has conducted in recent years have been for families’ first ever chief investment officer.

Sarah Burley Reid of executive search firm Spencer Stuart.
Spencer Stuart

“A lot of family offices of great wealth have concluded, really regardless of their asset size, that they want to bring capabilities in-house rather than outsourcing,” he said.

Virtually every big institution that invests outside money has a CIO. But it’s a relatively new front for many family offices, where the only client is the family. 

Before, that role may have been contracted out to a firm providing outsourced CIO services, like Mercer or Russell Investments. But family offices are looking to take on more complex deals and, in many cases, want to bring that capability in-house.

“I think those folks are not only allocators, but they can invest opportunistically,” Braddock said in a recent phone interview. 

Read more: Uber-rich investors hungry for growth have turned their sights on the private market. Here’s how wealth firms like Citi and UBS are transforming their businesses to meet those client demands.

Other recruiters we spoke with detailed similar themes.

“There is some concern that the equity markets are frothy,” and that having hefty exposure to private markets makes sense, said Jeff Warren, co-head of the private equity practice in the Americas for Russell Reynolds Associates. 

Warren, who is based out of New York and Los Angeles, said this year his team has completed searches this year for direct reports to a family office CIO specifically to oversee private investments.   

There is also a sense among family offices that they’ve got capital to deploy but are wary of putting money to work in funds charging something pricey like “2 and 20” — a traditional compensation structure where hedge fund managers and other money managers charge investors 2% of total assets under management and 20% of profits generated — and instead would rather allocate that capital directly, Warren said. 

More private markets exposure goes ‘hand-in-hand’ with direct-investing growth 

The trend of recruiting employees with “extensive” private equity backgrounds lines up with how family offices are thinking of allocating their money, said Dennis Caulfield, vice president of research at FINTRX, a family office research and data provider.

“This trend runs hand-in-hand with family offices, particularly single-family offices, opting to participate directly in private equity transactions as opposed to investing in PE funds,” Caulfield said in an email, adding that trend is more significant for family offices based in North America and Asia than for those based in Europe.

The growth has been stark in recent years. The period between 2010 and 2015 yielded the largest percentage increase in direct investment activity — 206% — of any five-year period since 1990, FINTRX said in a report.  

New York-based Willett Advisors, which manages Michael Bloomberg’s personal and philanthropic assets, last year hired Brian Allen as a managing director in its private equity group. He was previously a managing director of private equity funds at Soros Fund Management, according to LinkedIn and a report on Buyouts Insider

And Walton Enterprises, which oversees the assets of Walmart’s founding family, has made at least three hires to handle direct investments matters since 2019, LinkedIn shows.

Read more: Family offices salary data reveals how much the advisers to the world’s wealthiest make, from investment analysts to CEOs 

Family offices have also been clamoring to hire senior wealth advisors away from institutions who understand private clients’ needs, said Fira Yagyaev, a New York-based principal consultant at Selby Jennings focused on private banking and wealth management. Heads of portfolio management are also in relatively high demand, she said.

Prepping for possible changes to the tax code 

Building out robust direct-investment platforms is a focus for many family offices. But they are also looking to hire more legal talent to help them navigate changes in tax policy if Democratic candidate Joe Biden wins the US presidential election. Yagyaev said she has seen an increase in the number of trust and estate specialists for just that reason. 

“Absolutely, they are trying to pivot and get more legal guidance, anticipating changes to tax law,” said Julie Zorn, who runs the national family office search practice at StevenDouglas. 

“They’re making sure they are ready for whatever is ahead,” she said. 

That doesn’t necessarily mean hiring in-house talent. Some want the resources of a large law or accounting firm, said Zorn, who is based in Southern California and recalled many instances of family offices outsourcing those roles.

Brian Davis, a New York-based managing director and partner with the legal industry-focused executive search firm Major, Lindsey & Africa, said he has seen an uptick in the number of general counsel searches, specifically. 

“It’s not a sleepy back office, the way they used to be run,” Davis said. “They’re being more proactive.”